Greek Bonds Miss Out on ECB Rally as Tension Rises Over Funding

Greece’s government bonds fell, missing out on gains made by their euro-area peers, amid investor concern a provisional agreement to extend aid to the country may not hold.

The nation’s three-year yields rose the most in four weeks as euro-area finance ministers met in Brussels. Ten-year yields climbed above 10 percent for the first time in two weeks as Eurogroup Chairman Jeroen Dijsselbloem said on Monday that “little has been done” since the last meeting of euro-area finance ministers and “the key issue” was to not waste any more time. A European Union official said Greek cash may last for three weeks but that the outlook is unclear.

This follows comments Dijsselbloem made on Sunday that the list of measures the Greek government proposed as part of its four-month aid agreement were “far” from complete and the country probably won’t receive an aid disbursement this month. Greek ministers floated the prospect of a referendum if their reforms were rejected.

“The risks at these levels are that the market is even a bit over-complacent on Greece,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “The risks are larger than many perceive. If you listen to what the Greek government is saying, it’s clear they are still trying to do things differently. In any case it’s not going to be conclusive for resolving the Greek funding issue,” he said of Monday’s Eurogroup meeting.

ECB Purchases

Other euro-area government securities advanced on Monday as the European Central Bank began purchases of the region’s sovereign debt as part of its 1.1 trillion-euro ($1.2 trillion) stimulus plan. While ECB President Mario Draghi has said that only investment-grade assets could be bought, he said last week in Cyprus that purchases of junk-rated bonds are still possible as long as the country is in a European-Union monitored program.

That may include Greece beginning in July. That’s when there would be sufficient redemptions of bonds, held by the central bank under its previous Securities Market Program, to enable it to purchase additional debt without exceeding its limit of 33 percent of a single nation’s securities.

Greek three-year yields rose 179 basis points, or 1.79 percentage points, to 15.83 percent at 3:25 p.m. London time. The 3.375 percent note due in July 2017 fell 2.79, or 27.90 euros per 1,000-euro face amount, to 76.96. The 10-year rate climbed 66 basis points to 10.06 percent.

Germany, Ireland

German 10-year bunds rose, with yields dropping eight basis points to 0.32 percent, approaching the record-low 0.283 percent set on Feb. 26. The rate on similar-maturity Irish bonds dropped to a record 0.829 percent.

Bonds of Greek banks also fell and were the biggest decliners in Bank of America Merrill Lynch’s Euro Financial High Yield index.

Alpha Bank AE’s 400 million euros of 3.375 percent notes due June 2017 led declines, sliding 3.46 cents on the euro to 77.17 cents, the lowest in two weeks, with the yield rising to 16.15 percent, data compiled by Bloomberg show. Piraeus Bank SA’s 5 percent bonds maturing in March 2017 fell 3.67 cents on the euro to 76.95 cents, the lowest since Feb. 20, with the yield climbing to 19.77 percent, the data show.

Greece is scheduled to sell 1 billion euros in 13-week Treasury bills on Wednesday. At the previous auction of bills on March 4, the Athens-based debt office sold 1.14 billion euros of 26-week securities at an average yield of 2.97 percent, the highest since April.

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